You might not have heard of psychographics before, but it’s a key metric for building a powerful property portfolio. Learn its pivotal role here.
“Show me your demography and I’ll show you the future.”
So said the famous financial editor Harry Dent, who is a negativist, I believe.
Nonetheless, Dent is an intelligent guy – he just has a different perspective of the world compared to me, and probably you, too.
You see, he hedges everything on demography. And admittedly, understanding the statistically relevant data of people and places is critical. But I’d like to challenge Dent’s take and move it into the psychographic realm.
That’s why I say…
“Show me your emotions and I’ll show you the future.”
What drives behaviour isn’t statistical data – how I behave isn’t because of my age or because I’m in Bondi.
In fact, there’s a complete disconnect between data and the way people act.
Understanding this disconnect and how it may influence the property market is the key to a profitable portfolio. And the sentiment of those who live or want to live in a particular location is what you should rely on to make your investment decisions.
Let’s get to the bottom of psychographics vs. demographics and you’ll see why.
What’s the Difference?
The most obvious place to start the discussion is the more familiar demographics.
Demography is a branch of anthropology that studies the life conditions of people and their vital social statistics. ‘Demos’ means people in ancient Greek, and demography is essentially the recording of data about people.
In contrast, psychography is also about recording data, but it’s the study of the psyche of people. This means its concern is the spiritual and unconscious aspects of people.
Demographics include information like what you might find in census data, with the people broken down by stuff like age, gender, race, location, employment status, and so on.
Psychographics, meanwhile, take it a step further and classify people by personality value, principle, interest, lifestyle, and the like. Critically, this data set is often more important than people’s age, employment status, and gender for property investment purposes.
Why?
It’s because people are known to let their emotions do the thinking.
As an investor, you shouldn’t let your emotion run the show, but you can use emotion in another way. By understanding how emotions influence the decisions of tenants and buyers, you’ll know how to make money in property.
Why Psychographics?
Psychographics has numerous benefits when it comes to property investing. And the three listed here are among the most noteworthy.
#1 – Demographic Information Doesn’t Cover the Varying Personality Differences Within the Demographic
Sentiment drives intent.
For the purpose of this argument, we know that people who are Caucasian and aged 25-35 in the Greater Sydney region tend to be tertiary-educated with a higher income.
But, how many different types of people are there among those who meet those demographics?
Demography struggles to answer that question because it leaves out a number of critical parameters.
You and I could be in that group, but we could also be completely different people. Even if we are to share a common vision, our vision is likely to have different components.
We may think in different ways and our emotions may drive our behaviour in different ways. Also, we’ll want to buy different things – maybe different properties – and our hopes, dreams, and desires for the future may also be different.
My point is that demographic data alone can give you a false sense of understanding about the people in the areas that you’re considering to invest in.
#2 – Psychographics Clue You Into What People Desire
You can’t simply look at one side of the coin and say:
“Okay, this is how people feel and therefore, it’s a good idea to invest in this place.”
What you need to do is look at all the relevant data. Between demographics and psychographics, I’d prefer to understand the emotional profile first.
Now, some people believe that population is the single greatest driver of growth. They think that more people coming into an area makes it a good investment opportunity.
But the equation isn’t that simple. There are instances where prices go up dramatically in areas that have less population growth.
Rather than population growth or any other parameters, it’s the change in those areas’ psychographic profile that influences the change in property prices.
For instance, how is Byron Bay different from Yamba?
They’re both on the coast and they both have a beach and good living conditions. But more people desire to live in Byron Bay because of how they feel about the place, not the statistics.
#3 – Psychographics Cover the Qualitative Aspects of Property
The numbers are obviously important in property investing. But you also have to take into account the qualitative.
That’s what you can get from the area’s psychographics.
Imagine an area with an average tenant age of 35 over the past five years. What would have to change for property prices to go up in that area?
More jobs can do it, so can improved parks for a better community feel.
These are only two examples of improvements that affect people’s sentiment about an area. The fact is that when people feel better about living in a place, they’re ready to spend more to get what they desire.
Emotions Move Prices
In conclusion, you may want to look at the psychographics first when assessing the potential of an area. This data gives insights into what drives people to move there and spend money.
Of course, you will use these with other metrics that show you if an investment property is a good buy. Arm yourself with all the relevant data and you’ll be able to make sound investment decisions time and again.
